Rethinking the food vs. fuel debate

Dave Juday

This year's drought, along with recent news reports of the lowest corn yield in 17 years, has rekindled the food vs. fuel debate — and, for good reasons. When Congress passed the Energy Independence and Security Act in 2007, an ambitious schedule for incorporating ethanol into the nation's fuel supply known as the Renewable Fuel Standard (RFS) was established. Though ethanol was sold as a way to make our energy supply more secure, little consideration was given to what every farmer knows: Mother Nature can be fickle, as this year's drought proves.

Congress made several faulty assumptions, among them: that future supplies of corn would be plentiful, that demand for motor fuel would increase and that the state of fuel-making technology would ensure our energy future. Lawmakers just bet the market wrong.

Coming into this year, the nation's corn supply was down a cumulative net 1.3 billion bushels from what was projected in 2007, when the first four years of the RFS was charted out — and the RFS has another 10 years before it is fully implemented in 2022. In 2009, corn yields reached record levels; since that time, annual yields measured by bushels per acre have dropped year over year for the past three years, and the USDA's survey of crop conditions is expected to be 123.4 bushels per acre this year — down 25 percent from 2009.

Corn supplies are not the only faulty assumptions locked into the RFS. Energy consumption and production are also quite different than were projected in 2007.

Ethanol was proposed as a means to reduce dependence on imported oil. That trend is well under way, notwithstanding ethanol, as domestic crude oil production is up 11 percent since 2006 via new finds of domestic oil — specifically the Bakken Shale formation in North Dakota, estimated to hold more than 8 billion barrels of crude.

On the demand side, motor fuel usage has dropped for a variety of reasons. The sluggish state of the economy over the past few years has played a part, but the vast bulk of the decreased consumption, however, is part of a longer-term trend.

As more new, fuel-efficient cars hit the roads, older, less fuel-efficient cars are retired. Also, there are more diesel engines now, a trend also driven by fuel efficiency concerns. And while baby boomers age, there are also fewer young people to join the driving-age population — a double squeeze, since older drivers drive fewer miles

Lastly — and, ironically, done in part to ensure corn supplies weren't over-committed to ethanol — Congress mandated the use of cellulosic ethanol, a fuel that for all intents and purposes did not then exist. So far this year, according to the U.S. Environmental Protection Agency, which monitors biofuel use, no cellulosic ethanol was delivered to the motor fuel supply. Nor was any supplied last year either.

While the EPA did adjust the mandate down to 6 million gallons last year — a 97 percent reduction from the original quota — oil companies were charged more than $6.8 million in fines for not buying fuel that was not for sale. Not surprisingly, oil companies have sued the federal government over these fines.

With the benefit of a half-decade of hindsight, it's time to reform our renewable-fuels policy and create a clear, effective vision that considers Mother Nature, motor fuel demand and fuel-making technology. Only then will the real winners be both food and fuel.

Dave Juday is an economist specializing in agriculture and conservation issues in the Mid-Atlantic area. He is principal of the Juday Group. His email is dave@thejudaygroup.com.